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At Bob Evans Farms, the bucolic home of buttermilk biscuits and sausage links, a proxy fight and
so-so earnings have cooked up some indigestion.

Sandell Asset Management, which owns 8.4 percent of the company, has been pushing for major
changes at the company for months. Sandell believes the company can serve shareholders a windfall
return by splitting its restaurant and food divisions and selling much of its real estate.

Bob Evans management doesn’t agree with that course and has been fighting back. The company
spent $3 million in the past year wrestling with Sandell, according to its fourth-quarter earnings
report, released last week.

“These dollars should have been invested in building our businesses,” Bob Evans Farms CEO Steve
Davis said during a conference call with analysts last week.

Analysts who follow the New Albany-based company said it’s difficult to predict how the
situation will turn out. In the end, they believe both sides will have to give at least some to
find a resolution.

While Bob Evans has underwhelmed investors for several quarters, the company’s most-recent woes
are linked to outside pressures such as high pork prices and poor weather, said Keybanc analyst
Christopher O’Cull and Stephens Inc. analyst Will Slabaugh.

“It’s tough to place that entirely on management’s shoulders,” Slabaugh said, “which won’t help
Sandell’s argument.”

That didn’t stop Sandell from taking direct aim at Davis and the company’s board of directors
after the earnings release. Bob Evans reported a 56 percent decline in profit for the fourth
quarter compared with a year ago, along with a continuing slide in same-store sales. The company
also lowered its guidance for earnings in 2015. “These results are due in no small part to a
wasteful culture sanctioned by the company’s board of directors as well as the poor decisions made
by Mr. Davis,” Sandell CEO Thomas Sandell said in a statement.

Though the company has been beset by financial challenges, Sandell, a Swedish billionaire who
lives in New York, believes there is hidden value in its brand and assets.

Sandell wants Bob Evans to trim expenses at its corporate offices, liquidate a real-estate
portfolio that Sandell estimates is worth close to $1 billion and sell or spin off its
prepared-foods division. Sandell expects the majority of the proceeds of those actions to be
returned to shareholders through stock buybacks and dividends. To implement this strategy, Sandell
has proposed sweeping changes to the board of directors, including soliciting proxies for eight new
directors.

During that recent conference call with analysts, Davis talked at length about the proxy fight,
detailing the company’s settlement offers and Sandell’s counter-offers. The sides appear far from
reaching a deal.

“Bob Evans has not done a very good job of dealing with investors,” said John Gordon, founder of
Pacific Management Consulting Group and a former restaurant executive. “Sometimes when activists
come in, it’s a good thing. It works better when there is a constructive dialogue.”

The two firms have done less conversing and more jabbing.

Bob Evans’ latest offer was to give Sandell three seats on its board, and to expand the board
from 10 to 12 directors, Davis said. Sandell countered with a demand for five seats and the
dismissal of several directors who joined the board before this year. Sandell also asked for up to
$2 million from Bob Evans to cover the costs of his end of the proxy fight, Davis said.

The proxy fight is Sandell’s last push for change, Gordon said. Prodding the company with
suggestions and presentations for the past year hasn’t worked. The two are now in for a lengthy
battle, Gordon said.

Sandell probably won’t get what it wants, Slabaugh said. He couldn’t see the company selling its
real estate and leasing it back, and he put the likelihood of the sale of the food division at less
than 50 percent.

FrontFour Capital Group analyst Steve Lucas asked Davis what he thought of recent valuations of
companies like Hillshire Farms, which was snapped up by Tyson Foods last month.

Davis declined to comment, but added that no one has come to Bob Evans with an offer for the
food division.

Gordon sees the spinoff of the food division as a smart move if the company can attract a
friendly buyer, but warned that what worked for Hillshire’s shareholders might not work for
everyone’s.

“Hillshire got a huge premium,” Gordon said. “People automatically think that you should do the
same.”

On selling the company’s real estate, Gordon agreed with Slabaugh that it won’t happen. During
the conference call, analysts asked Davis about it and he said leasing back restaurants was an
expensive way to return money to shareholders.

“You can’t hold it against a legacy brand for holding real estate,” Gordon said. “You lock out
the problems of landlords.”

Sandell believes the sale of the real estate would enable the firm to buy back millions of
shares at a premium — raising the value of the remaining stock — and retain some cash for capital
investments.

Gordon said the fight will continue long after the company’s annual shareholders meeting,
usually held in August, where Sandell hopes to gain a foothold on the board.

Bob Evans expects to spend an additional $5.5 million in 2015 to shake off the proxy fight, said
Chief Financial Officer Mark Hood, who spoke during the earnings call.

If Bob Evans sticks to its offer to expand the board from 10 to 12 directors, Sandell will land
two seats because Bob Evans is nominating a slate of 10 directors. It’s a start for Sandell, but
not what it wants. Slabaugh isn’t sure Bob Evans needs more board members.

“It never hurts to add another independent director on the board,” Slabaugh said. “It could
bring a little spark for change, but I’m not sure how dramatic of a change is necessary.”

Sandell’s picks might not sit well with the rest of the board, Gordon said.